Let’s face it. With any new idea that requires a capital or expense investment, there really are three critical questions to ask and answer. What the cost, what’s the benefit and what’s the risk?

On average, it’s going to range from $3,500/month to $5,000/month. But there are a couple tips and unknown tricks a bank can and should use to reduce that or possibly take that down to zero. Let’s assume a net interest margin of 3%. To recoup a $40,000 – $60, 000 investments, the strategy would require about $1.5 to $3 million in deposits or loans. Or if you are in the wealth management with an average fee of let’s say 1.5% it would take between $3 – $6 million in assets under management. Or some combination of these…all are achievable, but certainly contain an element of risk and likelihood. Another approach is to use one or two of your existing financial assets.

Many banks hold over 40% of their financial assets in municipal bonds. Munis have their own credit risk, duration risk, and diversification risk that I have talked about in other podcasts and videos.

Let’s say your muni holdings average AA rating, 10-year duration at 2.5% yield. Let’s say you reduce the inherent concentration risk in municipal bonds and allocate $5 million to Bank Owned Life Insurance with an average yield of 3.75%. Higher yield, lower risk. The Muni portfolio generates cash flow income of about $125,000 per year and $10,000 per month. BOLI generates accrual income of about $187,000 per year and $15,000 per month

Now, you might say, with Bank Owned Life Insurance I can’t pay a cash expense with an accrued revenue. True. But here is a little secret that few will let you in on. Bank Owned Life Insurance pays a cash servicing fee to the servicing broker and agent. This fee is paid by the insurance company, not the bank. And THAT fee can pay the podcast expense. So, the expense is not reflected on your income statement. So, your investment is zero…actually, you generate an extra $5,000/month in that example through the higher yield from BOLI vs Muni in our $5 million example. And if you already hold BOLI on your books, in most cases we can modify the broker/agent of record so that we can utilize that fee to pay for this revenue generating program.

Now your current broker-agent might not be real keen on this because that is money out of his or her pocket. So, you are going to have to decide whether it is better to keep him or her happy or keep you shareholders happy. I think you know how I would vote on that.

So, that’s it for me. If you are interested in growing revenues…please contact me. I have been telling you all along I am committed to helping community and regional banks thrive and challenging ecosystem. I guarantee I will help you with this.

About The Author

Kelly Coughlin is a CPA and CEO of BankBosun, a management consulting firm helping bank C Level Officers navigate risk and discover reward. He is the host of the syndicated audio podcast, BankBosun.com. Kelly brings over 25 years of experience with companies like PWC, Lloyds Bank, and Merrill Lynch. Kelly earned his undergraduate degree (BA) from Gonzaga University and a master’s degree in business administration (MBA) from Olin Graduate School of Business at Babson College in Wellesley, MA. Kelly lives in Edina, MN.